Share

Derek Lowe's commentary on drug discovery and the pharma industry. An editorially independent blog from the publishers of Science Translational Medicine. All content is Derek’s own, and he does not in any way speak for his employer.

"Me Too" Drugs

Donald Light Responds on Drug Innovation and Costs

Here’s a response from Prof. Light to my post the other day attacking his positions on drug research. I’ve taken it out of that comments thread to highlight it – he no longer has to wonder if I’ll let people here read what he has to say.
I’ll have a response as well, but that’ll most likely be up tomorrow – I actually have a very busy day ahead of me in the lab, working on a target that (as far as any of us in my group can tell) no one has ever attacked, for a disease that (as far as any of us in my group can tell) no one has ever found a therapy. And no, I am not making that up.
It’s hard to respond to so many sarcastic and baiting trashings by Dr. Lowe and some of his fan club, but let me try. I wonder if Dr. Lowe allows his followers to read what I write here without cutting and editing.
First, let me clarify some of the mis-representations about the new BMJ article that claims the innovation crisis is a myth. While the pharmaceutical industry and its global network of journalists have been writing that the industry has been in real trouble because innovation has been dropping, all those articles and figures are based on the decline of new molecules approved since a sharp spike. FDA figures make it clear that the so-called crisis has been simply a return to the long-term average. In fact, in recent years, companies have been getting above-average approvals for new molecules. Is there any reasonably argument with these FDA figures? I see none from Dr. Lowe or in the 15 pages of comments.
Second, the reported costs of R&D have been rising sharply, and we do not go into these; but here are a couple of points. We note that the big picture, total additional investments in R&D (which are self-reported from closely held figures) over the past 15 years were matched by six times greater increase in revenues. We can all guess various reasons why, but surely a 6-fold return is not a crisis or “unsustainable.” In fact, it’s evidence that companies know what they are doing.
Another point from international observers is that the costs of clinical trials in the U.S. are much higher than in equally affluent countries and much higher than they need to be, because everyone seems to make money the higher they are in the U.S. market. I have not looked into this but I think it would be interesting to see in what ways costly clinical trials are a boon for several of the stakeholders.
Third, regarding that infamously low cost of R&D that Dr. Lowe and readers like to slam, consider this: The low estimate is based on the same costs of R&D reported by companies (which are self-reported from closely held figures) to their leading policy research center as were used to estimate the average cost is $1.3 bn (and soon to be raised again). Doesn’t that make you curious enough to want to find out how we show what inflators were used to ramp the reported costs up, which use to do the same in reverse? Would it be unfair to ask you to actually read how we took this inflationary estimate apart? Or is it easier just to say our estimate is “idiotic” and “absurd”? How about reading the whole argument at www.pharmamyths.net and then discuss its merits?
Our estimate is for net, median corporate cost of D(evelopment) for that same of drugs from the 1990s that the health economists supported by the industry used to ramp up the high estimate. Net, because taxpayer subsidies which the industry has fought hard to expand pay for about 44% of gross R&D costs. Median, because a few costly cases which are always featured raise the average artificially. Corporate, because a lot of R(eseach) and some D is paid for by others ““ governments, foundations, institutes. We don’t include an estimate for R(eseach) because no one knows what it is and it varies so much from a chance discovery that costs almost nothing to years and decades of research, failures, dead ends, new angles, before finally an effective drug is discovered.
So it’s an unknown and highly variable R plus more knowable estimate of net, median, corporate costs. Even then, companies never so show their books, and they never compare their costs of R&D to revenues and profits. They just keep telling us their unverifiable costs of R&D are astronomical.
We make clear that neither we nor anyone else knows either the average gross cost or the net, median costs of R&D because major companies have made sure we cannot. Further, the “average cost of R&D” estimate began in 1976 as a lobbying strategy to come up with an artificial number that could be used to wow Congressmen. It’s worked wonderfully, mythic as it may be.
Current layoffs need to be considered (as do most things) from a 10-year perspective. A lot industry observers have commented on companies being “bloated” and adding too many hires. Besides trimming back to earlier numbers, the big companies increasingly realize (it has taken them years) that it’s smarter to let thousands of biotechs and research teams try to find good new drugs, rather than doing it in-house. To regard those layoffs as an abandonment of research misconstrues the corporate strategies.
Fourth, we never use “me-too.” We speak of minor variations, and we say it’s clinically valuable to have 3-4 in a given therapeutic class, but marginal gains fall quite low after that.
Fifth, our main point about innovation is that current criteria for approval and incentives strongly reward companies doing exactly what they are doing, developing scores of minor variations to fill their sales lines and market for good profits. We don’t see any conspiracy here, only rational economic behavior by smart businessmen.
But while all new drug products are better than placebo or not too worse than a comparator, often against surrogate end points, most of those prove to be little better than last year’s “better” drugs, or the years before”¦ You can read detailed assessments by independent teams at several sites. Of course companies are delighted when new drugs are really better against clinical outcomes; but meantime we cite evidence that 80 percent of additional pharmaceutical costs go to buying newly patented minor variations. The rewards to do anything to get another cancer drug approved are so great that independent reviewers find few of them help patients much, and the area is corrupted by conflict-of-interest marketing.
So we conclude there is a “hidden business model” behind the much touted business model, to spend billions on R&D to discover breakthrough drugs that greatly improve health and works fine until the “patent cliff” sends the company crashing to the canyon floor. The heroic tale is true to some extent and sometimes; but the hidden business model is to develop minor variations and make solid profits from them. That sounds like rational economic behavior to me.
The trouble is, all these drugs are under-tested for risks of harm, and all drugs are toxic to one degree or another. My book, The Risks of Prescription Drugs, assembles evidence that there is an epidemic of harmful side effects, largely from hundreds of drugs with few or no advantages to offset their risks of harm.
Is that what we want? My neighbors want clinically better drugs. They think the FDA approves clinically better drugs and don’t realize that’s far from the case. Most folks think “innovation” means clinically superior, but it doesn’t. Most new molecules do not prove to be clinically superior. The term “innovation” is used vaguely to signal better drugs for patients; but while many new drugs are technically innovative, they do not help patients much. The false rhetoric of “innovative” and “innovation” needs to be replaced by what we want and mean: “clinically superior drugs.”
If we want clinically better drugs, why don’t we ask for them and pay according to added value ““ no more if no better and a lot more if substantially better? Instead, standards for testing effectiveness and risk of harms is being lowered, and ““ guess what ““ that will reward still more minor variations by rational economic executives, not more truly superior “innovative” drugs.
I hope you find some of these points worthwhile and interesting. I’m trying to reply to 20 single-space pages of largely inaccurate criticism, often with no reasoned explanation for a given slur or dismissal. I hope we can do better than that. I thought the comments by Matt #27 and John Wayne #45 were particularly interesting.
Donald W. Light

73 comments on “Donald Light Responds on Drug Innovation and Costs”

Wow. I read through once, trying to parse out the meaning of any number of sentences above. Maybe I need another cup of coffee, but does anyone else find them “somewhat” unclear or overly complex for arguing a point?

David, there is a simple and straighforward way to estimate the price of developing a drug. Look at the retained earnings (accumulated losses) of biotechnology companies bringing their first drug to market. This approach has several advantages.
1) As precommercial entities, such companies have little or no costs associated with any function other than drug development.
2) It vastly simplifies allocation of expenditures.
2) This obviates the issue of whether research and R&D spending are being commingled, as if you have no products, you aren’t likely to be doing significant marketing.
Looking at the data, you will find that few companies bringing their first pharmaceutical product to market have accumulated deficits of less than $500M. Adding in those conpanies that have spend many tens or hundreds of millions of dollars failing to bring even a single drug to market, the $1B number begins to look low.
Secondly, if drug discovery is a free money machine, simple economics theory says that other companies would be moving into the area to take advantage of the bonanza. Instead, those oompanies already in the area are consolidating and cost cutting.
Lastly, what is this “international pharma journalist network” you are referring to? Do you really think this industry is getting glowing press coverage? Have you picked up a copy of the NYTimes lately?

Sorry, that should read “whether research and marketing expenses are being commmingled”.
Also should add that these financial statements are independently audited by firms that are liable to shareholders for any material mis-statement.

As too few others have already said, there’s tremendous value in the debate unfolding here and it’s not served by insults, so let’s try to keep this going on a civil level. I respect Light’s eagerness to engage this forum, even if I disagree (in some cases strongly) with some of his sources and assumptions. In my view, there are several fundamental, deviously tricky items that need immense clarification before we can raise the discussion to a respectable intellectual level:
1. Which estimates of R&D costs are the “right ones”? Absolutely nowhere is it possible to find auditable (i.e. verifiable), consistent cost figures for this. Tufts and PhRMA use self-reported numbers from a handful of companies, each selected according to the company’s own budgeting idiosyncrasies, whereas Light uses figures and assumptions from a range of diverse, but equally idiosyncratic, sources.
2. Which tallies of new/novel/not-me-too drugs released per year are “correct”? Again, the figures we’ve seen are the result of very subjective analyses that can vary by multiples, not percentages.
3. What influence do arcane (to most of this blog’s readers anyway) and arguable assumptions play in the financial calculations that yield the “costs” used in this argument? At least two – the price index (inflator) and opportunity costs – can be framed wildly differently by well-informed, objective people to yield figures that vary by at least 2-3 fold.
Taken together, these first three items can yield cost estimates that vary by AT LEAST the range between the PhRMA and Light estimates of the cost to discover and develop one drug. If you want to rationally and objectively identify and solve The Problem, or even IF it exists, you’ve got to have better data than the piles of dung we’re currently flinging around.
4. Finally, it’s worth taking a deep breath and asking if pharma management might done things that look venal and short-sighted without intending to, perhaps based on flawed, but well-intentioned, business strategies? On this, I think Light’s comment, “We don’t see any conspiracy here, only rational economic behavior by smart businessmen.”, is worth unpacking. Joe Nocera had a nice piece in Sunday’s NY Times on the “maximize shareholder return” mantra that bears directly on this.
Without more solid answers to the first three questions and prejudiced answers to the fourth, the argument is pitifully “full of sound and fury, signifying nothing”.

My question is, If it is so darn cheap and easy to develop drugs in novel therapeutic areas, why does Prof. Light not start a company to cure all of the unmet medical needs? For only $43 million, he should be able to cure cancer, dementia, or AIDS, correct?
For all of the people I hear that criticize the pharma industry, none of them I am aware of has EVER brought a drug to the clinic. Even the non-profit groups like Gates, MJ Fox’s PD group, Welcome Trust, ADA, and several others groups have all spent far more than that to discover drugs for specific areas, and I don’t see many small molecules coming from that. (They do have some vaccines in areas, but those are very different programs than small molecules.)
I’m the first person to admit that the pharma industry has it flaws, mostly related to the higher up management of them by boards and CEOs. But I have also seen the governments way of doing research and would like to see how many drugs the NIH and other government groups have produced over the years for their spend. I have seen first hand the inefficiencies of those programs- compared to the government, big pharma is a model of efficiency and cost savings.

Dr. Light,
I am not an expert on drug costs – there are enough habitual readers of this blog who are that I will not set foot into the finances of the argument – but unfortunately I have become by necessity an expert on obfuscation and detecting (what I will call by its trivial name with the express disclaimer that I am not characterizing your particular argument) bullshit.
So let me apply that background to some parts of your post which jingled the old spidey sense.
“It’s hard to respond to so many sarcastic and baiting trashings by Dr. Lowe and some of his fan club, but let me try. I wonder if Dr. Lowe allows his followers to read what I write here without cutting and editing.”
Now that’s just the kind of beginning a neophyte poster to almost any Internet forum uses to try and soften up the room. It is a derivative of the classic “poisoning the well” fallacy in logic. The poster with a cogent and persuasive argument does not stoop to such tactics. One ignores the haters – because evidence trumps snark hard.
“While the pharmaceutical industry and its global network of journalists….”
Whoa. Did you just play the conspiracy card? That is a rookie move. You are replying here to an audience of hardened professionals who know that committees and group decisions usually lead nowhere and that any conspiracy larger that three falls apart due to native human incompetency.
And so on. I was going to continue in this vein, but I have to go back to work. I get paid to actually produce products people are willing to pay for. I was going to say something like you know how that is, but then I looked up your CV. Sociology? Really? A boiling knot of sarcastic prose had to be suppressed with a superhuman effort when I read that, but as I said, I will take the high road here.
So, to sum: Bring your facts, leave the spin.

#7, Your post illustrates the need to make sure we are arguing with the right facts. For example, small molecule R&D expenditures by non-profits…
Gates foundation: $1.48 B (2010 Annual report) on drugs, vaccines and prevention in at least 11 areas.
MJ Fox: $49 M (2010 Annual Report)
Wellcome Trust: $700 M (2010 Annual Report) on all Science activities, of which drug research is a fraction.
Please note that every one of these figures includes a large amount of non drug-related R&D spending. So according to the best primary data available, non-profits actually spend less than the pharma industry, not “far more”, as you state.
I don’t mean to pick on you, I just want to emphasize the need to make our points based on observable facts, not suppositions.

Dr. Light –
Ultimately, I think you want the same thing we all want. I wholeheartedly disagree with many of your points and assertions and I am happy to agree to disagree. However, I challenge you to improve your arguments.
You use exhaustive mathematics and hard figures to describe the cost of developing a drug. Which numbers you use may be up for debate, but you use disreet, quantifiable terms. Then, when you get to the hear of your argument, you make statements like this:
“Most new molecules do not prove to be clinically superior. The term “innovation” is used vaguely to signal better drugs for patients; but while many new drugs are technically innovative, they do not help patients much.”
Most, better, many, much.
The interesting thing is that those terms are qualitative descriptors of traits that are absolutely measurable. I’d be very interested in seeing how you define an acceptable level of improvement in patient outcomes and what level of harm is acceptable using some sort of risk-benefit analysis.
Try the following terms in that analysis:
NNH, NNT, survival, PGIC, SF-36

Rick, what issue do you have with the means of estimation that I suggested above? It contains no cost of capital, no price inflator, nothing but the audited, accumulated expenditures of companies bringing their first drug to market, having had little or no non-R&D expenses up to that time point.
It surely underestimates costs due to survival bias, but at least puts in a floor that is incompatible with Dr. Light’s number.

Ummm…#9 Rick-
The statement from #7 was “Even the non-profit groups like Gates, MJ Fox’s PD group, Welcome Trust, ADA, and several others groups have all spent far more than THAT…” You left out the critical “that.” #7 was referring the the $43M figure to bring a drug to market – re-read the post.
If that number is believable, assuming only HALF of the money YOU cited from the named non-profits was spent on R&D, said non-profits having now spent a combined $1.11B (one half of $1.48B + $49M + $700M) on R&D should have by now discovered and developed approximately 26 new drugs. I would love to know the identity of these 26 new drugs.

I would like to point out just two things which Prof. Light still seems to misrepresent or not fully appreciate:
1. The “crisis” is based not just on a declining new drugs/investment ratio but on very real technical problems faced by scientists. The fact is that it has become harder to discover new drugs, the regulatory hurdles are higher and the kind of targets that we are addressing are much more challenging than before. The crisis therefore is based very much on actual problems that scientists in the trenches are facing. Again, Light would have appreciated this had he talked to some scientists.
2. Prof. Light seems to still think that we scientists actually *like* to mint money off minor variations. Why would this be the case? If there were really a new major treatment for cancer that was different from all existing treatments we would be dropping everything and working on it, both for scientific AND financial reasons. The main reason we develop cancer drugs that are minor variations on existing ones is, again, because it’s just damn hard to come up with a breakthrough cancer drug with minimum side effects. Prof. Light seems to think that the industry “rewards” these minor variations, but that’s because there’s little else that it can reward. If there was anything that was a non minor variation, there is no reason to think the industry wouldn’t start salivating after it.

John Tucker, #12, It may well be a reasonable estimate, but there’s not enough information for me to judge that. What’s the source of the $500 M figure? (citation please) does it include public and private companies? (I’d prefer only audited figures, which means public companies) is that just R&D spending for drugs that have made it to market or does it include in-process programs? (the latter increases the numerator of the “dollars/drug” equation and shades into the hot topic of capital costs/cost of failure that bugs many people about the TCSDD figures)
Moreover, it represents spending by a subset of the industry, with it’s own peculiarities, including high up-front costs, different success rates, different components to its “R&D” budget (e.g. some Pharma companies have been shown to include marketing activities in “R&D”). As such, your estimate might be a floor, a ceiling or a median against which to compare Light’s numbers. I know that sounds lame, but having looked at these numbers for so long as a perverse kind of psychotherapy, it’s clear to me that we’re just talking past each other unless we put much more effort ensuring we compare apples to apples.

Dr Light put forward a specific number for the cost of bringing a new drug to market – 43M USD. He was ridiculed for it, and his defense is a smokescreen of irrelevant obfuscation. “We don’t include an estimate for R(eseach) because no one knows what it is…” We are treated to a litany of complaints, none of which help us calculate the cost of R&D: layoffs… not enough innovation … US clinical research is too expensive… not enough safety testing…
Here’s a fact: I’ve supervised budgets for single trials in phase II and III that are greater than 43M USD. So of course Dr Light’s estimate is preposterous. And his defense is even more preposterous. What he wrote was off-topic, incoherent, and useless.
(and a respectful tip of the hat to Nick in #4)

A couple of quick observations:
(Light) “the costs of clinical trials in the U.S. are much higher than in equally affluent countries and much higher than they need to be”
By what estimation? And we already run many trials overseas, so are we being consistently ripped off, and don’t benefit by competition? That’s hard to believe.
(Light) “I have not looked into this but I think it would be interesting to see in what ways costly clinical trials are a boon for several of the stakeholders.”
Hmmm. He admits that he hasn’t done any real research, but he has already decided that there is a conspiracy. Considering that many trials are run in much less expensive environments (such as eastern Europe), it’s hard to imagine that these costs could come down that much.
(Light) “The low estimate is based on the same costs of R&D reported by companies (which are self-reported from closely held figures) to their leading policy research center as were used to estimate the average cost is $1.3 bln…. Doesn’t that make you curious enough to want to find out how we show what inflators were used to ramp the reported costs up”
Again, in the absence of hard data he has already concluded that the numbers are inflated. However, he seems to ignore the fact that most big pharma companies are public, and so reasonable estimations are rather straightforward. Unless one believes that the companies are actually spending the billions (that they claim are going to RDP) on giveaways to doctors, junkets, and other frivolous things.
(Light) “But while all new drug products are better than placebo or not too worse than a comparator, often against surrogate end points, most of those prove to be little better than last year’s “better” drugs, or the years before”
This is probably true, this has nothing to do with the cost of finding a drug. I tend to have left leanings, but these are businesses, and what drugs they decide to bring to market are between them and the stockholders. It may come as a shock to Dr. Light, but it is as expensive to bring a “me too” drug to market as it is to bring a completely novel one.
(Light, from his web site) “half of the industry’s average cost of R&D is not real R&D costs at all, but an estimate profits foregone – a highly inflated estimate of what companies would have made had they put their money in an index fund and not developed new drugs in the first place”
Dr. Light seems to be happily oblivious to the reality of running a business. The estimation of profit and loss always includes the cost of money.
(Light, from his web site) “Much of that (research) cost is borne by others — NIH, other national research programs, venture capitalists funding bio techs, foundations, and others”
No, Dr. Light. Most research is NOT paid for by others. While the initial discovery of the drug target or disease state may have come from publically-funded research, most of the cost of discovering a drug occurs after that event. And venture capitalists don’t “donate” money to research, they are speculators that want a ten-fold return on their money (much of which pays for the bets that don’t work out).
(Light) “The trouble is, all these drugs are under-tested for risks of harm”
Me-too drugs undergo the same clinical trials and scrutiny as the first in class. And are you saying that the FDA is soft on pharma?
(Light) “and all drugs are toxic to one degree or another.”
Yes, the dose does make the poison. This is true for all drugs. If your point is that unknown toxicities are found in approved drugs, yes, that’s true, but they are often effects that only show up when the drug is taken in a larger population, which is impractical in clinical trials.
(Light) “If we want clinically better drugs, why don’t we ask for them and pay according to added value”
How do you assess this? And account for pharmacogenetic effects? I personally have benefitted from “me too” drugs, which helped me more than the first-line, supposedly “better” drug.
I could go on and on, but I’m betting that there will be lots of postings.

‘Here’s a fact: I’ve supervised budgets for single trials in phase II and III that are greater than 43M USD. So of course Dr Light’s estimate is preposterous’
No ‘of course’ about it – he points out the existence of individual exceptionally expensive trials, and the claimed $43M is a *median*. What’s the cheapest trial you’ve run?
I accept that Light’s number might be wrong, but you need a more reasoned argument than that … and it’s very difficult to make that argument while pharma companies don’t break down the cost of every trial in publicly-available audited documents.

@18 Tom – you are correct, but your point made me think of something else…determining the median cost of clinical trials will be heavily influenced by the large number of Phase I trials relative to Ph II, which is larger than Ph III. It would seem to me that the true median cost is the median of Ph I trials, plus the median of Ph II plus median of Ph III.
Admittedly, I’m not sure if that’s how the calculation was made or not, but for some reason, I doubt it.

Tom Womack, #43
The claim is that the *total* cost of developing a new drug is $43 million. This would include at a bare minimum at least one phase 2 and one phase 3 trial and more typically several of each.

John’s (#2) point is a good one. The problem can be to find companies that survive for long enough.
Vertex Pharmaceuticals was established in 1989 and finally made a profit in 2011 after successfully bringing telaprevir to market (and marketing it in the US). It had previously developed amprenavir and fosamprenavir which are marketed by GSK. And in January 2012 ivacaftor was also approved.
The cumulative reported R&D spend in Vertex’ 10K reports (1997-2011) is around $5.5 billion. Simple arithmetic suggests its cost in bringing each of these drugs to market is around $1.3 billion, and the figure is clearly at least one order of magnitude greater than Light’s figure of $43 million.

7, 9 and 13:
I think that the point is that a number of non-profit groups have spent well over $43 million each in drug research, and several government agencies in the US and abroad spent well over that per year, yet few if any of them have ever produced a drug for an unmet need. The simplest way to calculate the cost per drug is to take the amount spent at a company on R & D and then divide by the drugs produced. If you look at any estimates of those numbers, for a few companies, over any period of years and divide by the number of drugs produced, you will easily see that the cost per drug for R & D is well over $43 million, and has been for decades. No matter how you claim that the costs are inflated or shifted, the cost is at least $430 million, since the 90’s, and likely well over $1 Billion now. Any accountant should be able to do that math.
Having worked in research, I don;t know the exact costs of many clinical projects, but even the simplest of phase 1 studies we were doing were routinely over $1 million each by the time you include the cost of GMP oods, mandated GLP preclinical studies, and FDA paperwork.
So again, exactly what companies or groups have EVER gotten a drug to the market for $43 million? I just don’t see any facts backing up that number.

Dear Dr. Light.
Thank you for responding to the discussion. In your 2011 Biosocieties paper you addressed the assumptions made by di Masi et al to lower the cost of drug R&D. I propose an alternative method to calculate costs. Begin by visiting your local clinical research unit at a participating hospital and inquire what they charge a pharmaceutical company on a per patient cost for a study. You have complete freedom on the disease indication (or select a few to cover a range). What does your unit charge? $10, 000 per patient? $20, 000 per patient? Now if that per patient cost ( let’s assume $20K) was for a Phase 2 study of 50 patients you would spend $1 million, but a similar cost for a single Phase 3 study of 1000 patients would have you spending $20 million of your $43 million budget. Please note, that these are costs as set by your local participating hospital avoiding any bias set by Big Pharma. At this time, you may also want to review http://www.clinicaltrials.gov to estimate the average number of Phase 2 and Phase 3 trials that are performed for your disease indication.
For each clinical trial you will need to include the costs of entire team to perform data monitoring, data management and analyses. Feel free to contact various CROs and obtain cost quotes from them for one of your “studies” selected above.
Next, you will need to include the cost of a contracting a manufacturing plant that follows the regulations to ensure your drug product meets your specifications (include stability studies here). There are manufacturing plants not affiliated with Big Pharma to whom you again can obtain cost quotes.
Simlarly, contact the different CROs for the costs of complete toxicology studies –short term studies, longer term studies (these will depend on your disease indications selected by you above), repro-carci etc. Be prepared when factoring in the cost of your drug that depending on the animal species and toxic dose, you may be need to manufacture quantities greater than amount needed for your human clinical trials.
I enthusiastically await your calculations as if you are able to achieve your projection of $43 Million then I want the names of those vendors.

What’s the most expensive Phase III study?
The one that shows no reasonable efficacy in the wider patient population.
How about we try finding some solutions rather than arguing the toss over who has their unknown figures in the right unknown range?

I suspect that most of the points of disagreement arise from different life cycle viewpoints. The crisis Derek is talking about concerns wind-downs of small-molecule research departments since 2010, especially in the US. The products they will no longer develop will be less of a concern for Donald in 2025. Similarly, desiring only the best 3-4 in a therapeutic class means that each of, say, 10 companies chasing that class should develop a lead and a handful of followers. The number of molecules a medical chemist considers has risen greatly in the last 10 years (x1000?) to maintain the number of phase III candidates. Nor is a successful therapeutic class static over this sort of timespan, it just appears so after progress slows.
As far as a new drug is at least as beneficial as a new car, or type of ski, I don’t feel that the efficacy, safety and economic creation barriers should be higher than for these. This is currently not the case, a situation that bothers patient action groups, and concentrates the price on new drugs as old ones no longer deliver cash. I’m just as distressed that our company can no longer afford to produce bromocriptine, an acclaimed world-class innovation in the 80’s.

From #17;(Light) “If we want clinically better drugs, why don’t we ask for them and pay according to added value”
How do you assess this? And account for pharmacogenetic effects? I personally have benefitted from “me too” drugs, which helped me more than the first-line, supposedly “better” drug.
Actually, there are rigorous methods (Pharmacoeconomics – applied for decades) to measure added value from drugs. They actually drive much of industry portfolio decisions. Perhaps Prof. Light should try and talk to some of his colleagues at Penn like Henry Glick, Prof. and Senior Fellow in charge of PEc and other aspects of Health Economics.
One of the foundations of this is not just avoidance of alternative surgical/hospital costs (that constitute the 90% of our healthcare costs that are not drugs) But also the value to society of extending the life of pr4oductive citizens. I think that may be adding diminishing returns since cardio medications extended average lifespans by ddecades. Still, these have real measures of value and benefits as opposed to the kind of quantitatives from sociological studies. Of course that may be why his colleagues at Penn would not really want to get involved.

” but the hidden business model is to develop minor variations and make solid profits from them. That sounds like rational economic behavior to me.”
If this were true, then not-for-profit drug discovery organisations should be having stunning successes in curing the diseases that we allegedly wonâ€™t.
All the drug discovery projects Iâ€™ve worked on in industry start with the observation that an enzyme is up-regulated or mutated in certain cancers. The premise is that if we inhibit it that will kill the tumour. So after a lengthy drug discovery campaign, if youâ€™re lucky, you end up with a compound that does inhibit the target enzyme when given to patients. The problem is, that cancer cell biology is so complicated that often when the compound is given to patients, the cancer finds ways of getting round the inhibition â€“ either through feedback loops or mutations, which in the end means that the drug doesnâ€™t work as well as youâ€™d hoped, or off target effects make the compound too toxic to be of use.
It could be that weâ€™re all actually going about trying to cure these diseases in completely the wrong way, but that would be everyone â€“ industry, academia and charitable organisations.

Some of the above arguments on median clinical trial costs reminded me that some arguments around excessive R&D “inflators” are valid. These are rooted in how costs are designated in Accounting. Some grey areas that arguably could be described as marketing can be grouped under R&D as Phase IV. This was a real grey area problem 10-15 years ago. As a result, R&D spend seemed higher than it really was. (However the cost of doing business in total remained the same.)
However, I think that the explosion of post-approval regulatory=-required trials and monitoring make this (purely marketing trials) a small fraction of what it was before. Just to help clarify why some arguments seem valid, depending on perspective and definitions.

Tom@18 – Sorry that you didn’t understand. I gave you, not the price for the most expensive trials, but rather a typical price for a single trial. To get a drug through phase II and conduct confirmatory replicate phase III trials, the cost is well above 43M USD, except perhaps for the most trivial of conditions.

I’ve worked with several non-profit/venture-philanthropy entities addressing the most intractable CNS diseases. They are all efficient in terms of overhead costs, are pure of motivation, spend almost nothing on marketing/communications (unfortunately for me!), and are driven to find cures. Desperately so. Yet they all struggle with even minute clinical advancement. Progress is achingly incremental. Everybody knows this, but it bears repeating: biology is really, really hard. Bioethics might be ‘hard’ to, but in an entirely different way.

“We don’t include an estimate for R(eseach) because no one knows what it is and it varies so much from a chance discovery that costs almost nothing to years and decades of research, failures, dead ends, new angles, before finally an effective drug is discovered.”
What is this supposed to mean? If pharmaceutical companies knew what would succeed, why would they try anything that would fail? No, any reasonable estimate of ‘the cost of a new drug’ must take into account the dead ends and failures along the way. You can’t point at the cost of developing a single drug in a vacuum and call it the cost of a new drug. The $43m figure, even if accurate, is meaningless.

I’m mystified why Light (and some of the commenters here) obsess over the cost of a single successful drug. The vast majority of significant new drugs cost far more to develop than the $43M he has cited, but that’s not the relevant point. It seems as if Light doesn’t understand that clinical trials are run because we don’t know what the outcome will be. Most candidates fail during human studies, and we don’t know which they will be, but when they do, all the money spent on them goes down the drain. The organizations supporting drug discovery/development have to account for that. And BTW, it should be mean expenses that are analysed, not median – the outliers have to be paid for too. (On what basis is Light able to determine that unusually expensive drug trials are somehow ‘artificial’? They were run because the people paying for them believed they had the potential to be exceptionally valuable, like Torcetrapib).
He seems to be saying that if you just did a better job, you only need to buy the lottery ticket that matches the one that will be pulled from the barrel.

#29
Your point is well taken. What I was trying to get across is that it is difficult to predict the long-term clinical impact of a new drug at the time it is being approved, or its added benefit. That is, I should have said “predict” instead “assess”.

I find this blog interesting, but as I’m not in the industry, I can’t speak to most of it myself.
However, only 3-4 variations are valuable? I seem to have an unfortunately tendancy to build up drug resistances unusually quickly. This isn’t too bad for drugs I can be minimal with, but what about a therapy that *needs* everyday use to function effectively? I take the contraceptive pill for my endo symptoms. In the past 3-4 years, I have been through now four different “minor variations” of what really is basically the same thing, and that’s only the government subsidised ones. Because of the limited supply of those, I leave switching pills not until effectiveness has dropped off noticeably, but until the symptoms have once again reached a point that I cannot bear them any longer. I have also had an unusual negative reaction to only one kind of pill and not the others so far.
Personally, I’d think 3-4 would be more like a minimum than a maximum. Even those not contending with resistances have to deal with differing effectiveness and effects from person to person. Biological systems are weird, and not everyone responds the same to each drug for a variety of reasons.

Can anyone point me to any single drug approval that has cost $43 million in the modern era? I don’t think even orphan drug approvals or those for things like hepatic carcinoma can clock in that low- unless we’re talking 1972…

If 43 million is a ridiculously low figure then lets acknowledge that 800 Million- 1.2 billion is also ridiculously high.
Many biotechs I have known have discovered leads within the first 10 million and optimized in in the next 5. Add clinical trial costs and will the figure not be around 80-100 mill at most per program? Admittedly for small – medium biotechs. Otherwise who is gonna fund these? Not every biotech can pass on the optimized compound to a larger buyer all the time.
Do 9-10 targets/programs actually fail for every successful one in large pharma. If yes, then large pharma should rightfully disappear. Leave it all to small biotechs and not to “too big to fail pharma”.
If drug discovery really costs 1.2 billion, and majority of costs are for clinical trials and animal experiments/pk/pd etc why layoff all those medicinal chemists? Surely their cost to a company is puny as compared to other expenses?
Its likely that the the true cost is somewhere between the two extremes of 43 million -1.2 billion. Gravitating more towards the lower end rather than the ceiling.

Do 9-10 targets/programs actually fail for every successful one in large pharma. If yes, then large pharma should rightfully disappear. Leave it all to small biotechs and not to “too big to fail pharma”.
The short answer is ‘yes’. We benchmark the probability of technical and regulatory success to be around 15% for biologics and about half that for small molecules. I think you’ll also find that for every 9-10 small biotech startups, you’d find 1 that winds up successful to be pretty typical, possibly overly-generous. This is the kind of math the VC’s expect when they invest.

Andy,
But most VC concentrate on startups that are working on a novel target or known target but value addition due to a different mechanism of action with a known target.
As far as I have seen most of these startups have between 2-3 programs and have no intention of doing clinical trials themselves. So VC’s would bet not more than 50-60 million USD. Knowing VC’s, they would not even commit this whole amount unless biotech’s reach milestones as per term sheets. So they would end up expending less money than projected. Sum this over all biotech’s and then average out for the successful/unsuccessful programs.
Large beauraucracies many a times exist for their own sake, thus inflating costs. Its possible that a substantial portion of what large pharma does is wasteful/unnecessary expenditure. I have personally seen the management pressure for paying millions of dollars to a human genome sequencing company for an early draft, just because competitors were buying it and one should be in on the game.

Wow. Derek, you may want invite Prof. Barry Trost to respond to Donald Light in addition to your own comments. I had the pleasure of having lunch with Professor Trost, and during that lunch, the topic of costs of drug development for the US pharmaceutical company and frustrations stemming from it came up. He spoke extensively about the issue with us regarding patents and how US pharma isn’t seeing much of the benefits from the investments they’ve put into drug development.

#41 – The only way of getting that quickly from target to trials is by using a validated target. What about new targets? First, you have to validate that what academia has put forth is actually real, because it not always is (and several of those cases have been noted on this site). Next you can do the in-silico and start your platform. After optimizing, then you move into small animals. Once your optimized molecule kills off a few mice/rats, you work out those bugs by optimizing some more. Then you move into larger animals and eventually humans. First you need to test human safety. If you compound is tolerated, then you move into PII. Sometimes your target can be validated in PII, sometimes it cant. Then you can move into PIII. In phase III, if your target isn’t already validated you will need hundreds to thousands of exposures and EFFICACY to be able to submit to the FDA. All this takes time and money. I think the 800 million is actually a good number. I would be happy if a company could get a new chemical entity to market that was effective for only 800 million.
One note on the me-too’s and incrementally better drugs. If you continually extrend patients lives 2-3 months at a time, you eventually get to years and then decades.

Following on from #45, On #41’s point there is also the issue of scale up chemistry to produce material for tox and safety pharmacology studies even before you get to the clinic when the material has to be GMP quality
That won’t come cheap especially if the lab synthesis needs a lot of modification

#45- You are absolutely right. This is, unfortunately, how real science works,more often than not.But how can one make this pay?. Each time I think about this I keep coming back to the point that the current length of exclusivity isn’t nearly enough to support the current system of incremental improvement based on clinical outcomes.

I’ve made this point before, and I think it’s worth remaking. Merck’s Neuroscience UK centre was open for 20 years. It cost around $50MM per annum to run, doing pure preclinical, predevelopment research. Merck’s investment in Discovery research at that centre was thus around $1 Bn, plus/minus. Two marketed drugs came out of that investment. The targeted investment made for those two drugs was, of course, much lower. But the sunk cost in research was around $500 MM per positive outcome. I don’t think this is atypical.

There might be a sociologist somewhere who has schooled himself enough on the science of drug discovery to make a reasoned argument about it. Let’s just say Donald Light seems unlikely to be that sociologist. I agree with some of the commenters here that Light’s comments seem to indicate that he has had almost no contact with actual scientists doing the grunt work; he is a modern version of the Greek philosophers who speculated about the number of teeth in a horse’s mouth without actually opening it and looking inside.

@insilicoconsulting
You may want to do some ex silico drug discovering and developing, then come back to us on whether the cost is gravitating toward the $43M.
I’m not understanding how you think it’s closer to the lower number when you say in in comment #43 that a biotech may have 2-3 programs that require $50-60M in investment. Assuming a dreamy success rate of 33%-50% that’s already $50-60M you’ve plunked down and you haven’t even reached the clinic.
I will agree that pharma is pretty inefficient compared to biotech in the R part of R&D, but the R part is also not the expensive part. The D is and that’s what pharma does better than anyone else.
The study is a little dated but a 2008 Nat Rev Drug Disc paper showed that Pharma Phase III success rates and FDA approval rates were much higher than biotechs. It’s pretty easy to understand why. If all you’ve got is one or two clinical candidates you’re going to push them as hard and as far as possible. That’s not only inefficient, that’s an inefficiency at the most expensive part.
I wouldn’t be so hard on pharma. They have their role just like biotech.

For those of you still reading this thread, click on my handle to see Light and Warburton’s newest work covered on Slate by Timothy Noah as basically a verbatim press release.
Slate isn’t the friendliest place for pharma, but I’m amused at how the comments have turned quite a bit against their numbers.

#41, 43 – one in 30 start up biotechs/biopharmas sees profitability. So that means that 29 out of 30 biotechs – you know those nimble, motivated, groundbreaking visionaries with little overhead and no beaurocracy – 29 out of 30 fail.
Furthermore, the fact that there is heated disagreement between whether the cost is $43M or $1B does NOT mean that the “truth” must be somewhere in the middle. That’s an assumption used by lazy people to sound reasonable and educated without having to put in the real work of actually finding the right answer. Give me a break.
Finally, while it’s difficult to determine EXACTLY what the right answer is, it’s not very difficult to determine which one is wrong. As was mentioned previously, we can take non-profits as an example – you know those altruistic, people-loving organizations whose sole raison d’etre is to improve public health. Divide their total expenditures over the past 10 years by $43M and that is how many breakthrough drugs they should have discovered over that time period, according to Dr. Light. Let us know how that math works out.

#36 is spot on. The cost to develop a single drug is not the actual cost being sustained by the company. You can’t look at it in a vacuum. It has to be factored in with all of the failures, because that is the reality of drug discovery. Most programs fail. Even in a vacuum $43million is a laughable number, but add in the cost of all the other programs that failed PhII-III during the one successful drug’s development, and one hits the big numbers without skipping a beat.
If you want numbers, my company figures about $250k a year total expenses for a fulltime med chemist, and about $300-350k a year for a typical biologist. To keep figures even, 100 chemists in groups of 10, working on 10 different programs means that in one year we would spend at least $25million on just chemists (not factoring biology). Figure 3 years of research on each project and you are at $75million in Research expenses. then figure that only one of those projects has any chance of success, and that is giving a generous 10% success rate, which is very optimistic.
That is the research cost of one successful drug, which almost doubles the $43million dollar figure by Light, and that doesn’t include the biology costs! Start tossing in the costs of clinical trials and you are well on your way to the big numbers. Don’t forget that half of those 10 programs won’t get canned at the research level, but will advance to PhI or even PhII before they are terminated, accumulating expenses along the way.
That is why $43million total is such an ridiculous number.

Looking at the comments on the Slate article highlight by Chemjobber I noticed one by Professor Light on the recovery of costs by those drugs that reach the market.
He seems to assume that market approval ensures recovery of costs in every case. I recollect the study by Grabowski & Vernon (1994) showing that most approved NCEs don’t recover their R&D costs. I suspect that there are also more recent assessments on this point

#41,43: Why did GSK spend $720M on Sirtris, then? Did they expect to get 17 drugs out of the deal? There are lots of other small company purchases, as well, that, if the $43M development figure were correct, would have cost almost as an entire year of drug approvals and almost certain make no sense if that estimate were accurate.
As a second problem, the point of small pharma has tended to be to “get to payout” rather than “get to drug”. The purpose determines where small pharma is going to spend its (very limited) funds, and it’s probably not on high-powered clinical trials – the ones that drugs need to be approved.

And on the cost of clinical trials in looking at a corporate presentation on the phase III study for PROSTVAC I have just found a slide that gives the cost of the 1200 patient phase III study as $150 million comprising CRO, manufacturing and internal costs!

Drug Discovery and Development is Cost Situational-Specific and debatable until all of the losers say it is time to stop debating.
Now settle this argument the good old-fashioned American Way!
A mud-wrestling contest between Derek and Light!

Hey. As an interested outsider in this argument, I have no position on how much drugs cost to develop, but would like to find out.
If Donald Light is completely wrong, and it is obvious to anyone in the know WHY he is wrong, is there any chance somebody could rebut his post point-by-point?
At the moment the rebuttal seems to be on the ‘lol fail’ level. He’s a sociologist so there is no need to refute what he actually says. He is a blowhard, or he sets off your BS detectors, so the conversation is over.
I’m sure you all know better than I do on this subject. But reading your replies, there is no way of learning what it is that you know, as you aren’t saying, just going immediately to ad hom.

@59
There are plenty of well-versed and knowledgeable replies in this topic about the cost od R&D a new drug. For instance #45 answer gives us a broad view of what is involved in a new drug.
I can add with another example, the cost of developing a biosimilar that (overcomes most of a NCE studies) costs around 30 million.

#57: $150MM for a 1200-patient Phase 3 study? Depending on treatment duration, procedures, labs, etc. this is totally plausible. More and more big Phase 3 or 4 studies (especially things like CV outcomes) are crossing that $100MM threshold, and some are multiples of that.

Since when is R considered separate from D? I agree with #54 about research costs and #56 also has a good point. As a long time employee of big pharma who was fired by my last employer I certainly have no love for them. However, as stupid as management may seem to be there is no conspiracy to defraud the public or the government. Drug research is risky and it is expensive but it does provide a benefit to society even when the output is only an incremental advance to what was available previously. Ask the cancer patient who has had his life extended by a few months whether or not it was worth the effort to develop the drug that gave him that opportunity. While it is certainly true that there is a lot of waste and redundancy in the research being done at today’s pharmaceutical companies, the mystics and charlatans such as Light cannot be allowed to promulgate their misinformation to the masses or to the opinion makers without being directly challenged. If we allow this to happen, my entire 40 year career will have ended up seeming to be a total waste of time and I don’t feel that it was.

Here is one back of the envelope calculation for one aspect of an clinical trial that will show just how ridiculous a $43M avg drug dev cost is. Consider a 300 patient Ph 2/3 trial with a comparator that costs $5,000 a month, which is the cost of many of them that are not generic, if not even more (oncology, for example). If just the comparator arm is on that drug (150 patients), the total comparator cost of a 2 year trial is thus $18M, not including packaging and distribution, and this is just one aspect of the complex logistics required for a supply chain to keep a trial on track, not to mention clinical costs, drug safety costs, and lets not forget even submission fees to global regulatory agencies. Those disciplines are out of my expertise area, but my understanding is that trial site costs are also quite considerable. I too have difficulty making any sense of what Light is saying, I think us posters here are talking a different language than him, we use real numbers and work experience, he is one of those that have mastered the art of using many words to make himself sound smart to the untrained.

One more thing, it is easy to get a 1st order approximation of what it costs to develop a drug. Take the number that PhRMA estimates is spent by Pharma companies ($49B in 2011) by the number of NCE’s approved (24 NCE’s, 6 biologics in 2011, USA) for an avg drug cost of $1.6 billion. Now I know there will be objections to such a simplistic equation, but I bet I am a lot closer than Light is.

Irrespective of the correct figures for R&D expenditure surely the elephant in the room here is the underlying science which ultimately decides the destiny of the drugs and the industry.
The case is made for the pragmatic R&D approach of variations of existing proven drugs filling gaps in the market for instance side-effect without telling new efficacy. This may be commercially effective but by definition it has a limited duration. In any given area eventually the side-effects and patient types will be fulfilled. It also hugely vulnerable to drugs with new telling efficacy which could render such drugs redundant in the middle of their patent period payload.
The argument about approvals returning to the average is a historic trend analysis but we see the key benchmark as being against the underlying biology. Addressing the biological requirements must represent the path making drugs which meaningfully help patients and are commercially valuable. If you look at the various therapeutic areas such CNS, cardiovascular, cancer etc etc there is a common trend. Previous success has raised the bar for new efficacy and new efficacy is much more elusive yet unmet clinical need remains in large scale. Heart disease is still the biggest killer and lives are extended in oncology but so often the destiny is the same.
The pickings for similar drugs with better side-effect profiles gets ever thinner with each new innovation and the commercial challenge for such drugs is increased by generics. Governments and health insurers understandably scrutinising carefully the claims for new launched drug to establish whether the benefit claimed over generics with similar efficacy justifies the generally large price premium.
Ultimately what is needed is new telling efficacy in these complex diseases and we believe the reason this is proving so elusive is to do with traditional research approach and obsession with single targets and pathway biology. Life looks to function through complex proteomic systems. If new efficacy is sought then tools are needed capable of unravelling this complexity. At last we see new hope and enormous potential in the fledging discipline of network pharmacology, the only techniques we have seen with the potential to address the realities of the underlying biology.
Time will tell on numbers of new drugs approved and the fall and rise of companies riding the ‘not quite a me too’ wave. If I was a CEO of a pharmaceutical company and this formed the soul fuel for my engine then the patent cliff would seem a scary place.

Those of us who have been teaching, or remember their own education, may remember how students are encouraged to apply a plausability test to their results. If you are asked to calculate how long it takes to fly over the Atlantic, and your answer is eight minutes, then you ought to suspect that the calculation is wrong — even without looking at it.
Dr. Light’s excuse for failing the plausability test is that real pharma R&D costs are unknown, undisclosed, closely held, impossible to determine… After rejecting the yardstick of the industry’s own estimates (which to some extent is fair enough) he conveniently finds no other.
But drugs in various phases of development, and the companies that developed them, are traded, and often enough in public. Of course it can be argued that when a company pays down billions for a hepatitis C inhibitor or an potential Alzheimer drug, its decision is influenced by the potential sales as well as by the R&D cost. However, common sense says that pharma managers would not spend these vast sums if they secretly believed that they could develop a “me too” drug for $43 m. It should be possible to calculate what value the market sets for a drug in different stages of R&D.

My budget in the 2000 timeframe at MRL was $13 million/annum to merely run a science library providing literature and expert searching to support Basic and Preclinical, primarily.
Develop a drug for $43M? Unlikely.

Considering a drug that should be cheap to put to market. Colchicine has been around forever to treat gout, but was just recently approved by FDA; thus driving up the cost for patients significantly.
Can anyone out there confirm what’s on Google that it cost $45 million just for the FDA application?http://en.wikipedia.org/wiki/Colchicine
If the FDA is making that much on one application, then Donald Light really needs to factor that into his calculations. If this is true, it’s clearly not just pharma getting their (large) cut in the process.

The absurdity of Dr. Light’s opinions and the lack of clarity in his response make it clear what he is. He may not be Deepak Chopra, but it’s a difference of degree.
I’m most pissed at the BMJ for giving him the ‘oxygen of respectability’. Now serious people need to waste valuable time responding.

I have made a very small fortune investing in development-stage biotech in the usual way (by starting with a large fortune). The claim that it costs $43M to develop a drug is beyond the pale. Every single company I’ve invested in has burned through more than that without any results to show for it.

Am I upset that I lost this money? Not really, because in the long run it is only science that can save us from disease.

But I am upset to see some idiot minimizing the losses of investors like myself with this crazy $43M figure.